commentary Leaders of Australia's ICT industry are currently in a state of panic over the debatable prospect of an economic downturn in the sector and are going too far with cutting jobs.

At first the layoffs were coming in dribs and drabs, like the tip of an iceberg gradually breaking the surface of the chilled Atlantic Ocean. But over the last few tense weeks in the ZDNet.com.au bunker, our list of local job cuts has been growing almost daily. Yesterday it was Ericsson and Hutchison, with IBM cuts reported; the day before it was Alphawest.

The news is coming as it does in the wake of the unrelated collapse of large Australian-owned groups like Commander Communications and Optima, and the organic IT-related redundancies going on at other locals such as Telstra (as well as its Kaz IT services subsidiary), Engin and the National Australia Bank.

If these misfortunes were the extent of the damage, IT workers probably could have heaved a sigh of relief and gone back to nonchalantly sipping their lattes while sledging whatever giant dominates their particular niche (Telstra, IBM, Microsoft, Oracle — take your pick).

But with the bulk of the iceberg beneath the surface, there is clearly more to come.

The overwhelming majority of the ICT companies in the Australian marketplace that we have talked to over the past month (with a few exceptions like Uecomm and Unisys) have either confirmed that they are cutting staff or have refused to talk openly about the situation at all. And you know what that is likely to mean.

The problem is that there is little evidence to suggest that there is any real need for such an unprecedented pullback. In short, it is a massive precautionary measure designed to weather any storm; regardless of whether any bad weather conditions will even arrive.

One of the best summaries of this ludicrous situation was delivered by ASG CEO Geoff Lewis (PDF) at the IT services company's recent AGM. ASG, like many of its listed rivals on the Australian Stock Exchange, has suffered a massive blow to its share price over the past year. And Lewis was quite clear on the reason behind that.

"None of this has anything to do with the business performance of ASG, or that of its competitors, or the IT sector up to the present time," said Lewis. "It has a lot to do with the nerves of investment managers as well as the state of their portfolios and the attitudes of their investors."

It is those nerves that have spread to the CEOs and managing directors of Australia's ICT companies; and they are not standing firm in the face of imagined adversity.

In fact, Lewis pointed out, ASG had increased its revenues by more than 46 per cent in the year ended 30 June, 2008, with net profit after tax growing 28 per cent. It's a similar story at other Australian IT services firms (for example, UXC, SMS Management and Technology and Oakton). The local divisions of international giants (such as IBM) have also broadly increased their revenues over the past several years.

Lewis admitted that the full impact of the global financial crisis was yet to be felt in Australia.

The problem is that there is little evidence to suggest that there is any real need for such an unprecedented pullback.

However it is also unclear just whether that impact will hit the local ICT industry much at all. There's just too much going on, and recruitment firms continue to emphasise that we are still in a skills crunch.

For starters, most of Australia's major banks have committed hundreds of millions, approaching billions in some cases, of dollars in IT spending over the next few years to rejuvenate their core banking systems.

It's a similar case in state and federal governments, including not only mammoth institutions such as the Australian Taxation Office, but also health, education and transport departments around the nation. And other areas of the private sector (such as retail and resources) will also continue to outlay IT funds for major projects.

Then there's the telecommunications field; most of Australia's telcos are still growing, especially in the mobile field and broadband fields, and Kevin Rudd's $4.7 billion broadband network (which could blow out to as much as $25 billion with private sector investment) is expected to generate a massive amount of development effort for vendors like Ericsson and telcos alike.

In-house IT departments will likely see some budget shrinkages, but IT is so crucial to most businesses these days, they are unlikely to be substantial.

With this in mind, let me pass on a couple of pieces of advice for those laying off staff. Firstly, there is significant evidence that downsizing isn't a great quick fix to your company's woes. In the long term, it may be better to keep those extra workers around and take a few hits.

Perhaps more importantly, don't be too quick to ditch workers you may have to re-hire just a few months down the track.

They may not return. And word will get around about how they were treated.